Posted by: Chris Palmeri on March 6, 2009

Today Hot Property is starting a new feature we’re calling Tell Us Your Real Estate Story. We’re looking for true tales from people buying, selling, or just trying to hang on to their homes. Send a photo of your house and share a bit of what you’ve learned during this slump to chris_palmeri@businessweek.com. We’ll publish it on the Web site. Realtors’ stories are welcome too! I’ll kick this off with my own recent tale:

After months of serious searching I closed Thursday on a home I’m planning to rent out. I paid $125,000 for a house that sold four years ago for $355,000. If you’re thinking about buying a bank-owned home I’ve learned a few things. One is that good ones go fast so if you see something you like make an offer. Avoid foreclosure auctions. The houses all need a lot of work and you don’t have time to do proper inspections. Also, the houses at the end of the auctions sell for a lot less than the ones that start off the day because buyers leave. I got outbid early in one auction. Later the same day my friend picked up a three-bedroom home in the close-in Los Angeles suburb of Van Nuys for $163,000 that sold a few years ago for $500,000.

I’d been looking for months in my neighborhood of Los Angeles and while prices had come down I wasn’t seeing anything that was likely to produce positive cash flow, even with a sizable down payment. I made an offer on a short-sale—a home in which the owner is trying to sell it for less than what he owes—but withdrew it when the listing agent didn’t present my offer to the bank. Stay away from short sales because they involve too many decision makers. That property is still on the market.

I widened my search to suburbs of Los Angeles that were a train ride into town—in case gas prices bounce back—and that were places that had jobs and would likely still have job growth in the future. Through Realtor.com, I found a cute two bedroom, one bath Spanish-style bungalow listed for $129,000 in Ontario, California and I made an offer for $123,000. The bank that owned it asked for a counter offer. I came back with $125,000 and they accepted. These are photos of the front of the house and the living room.

Even if you’re pre-approved for financing, it’s a huge struggle to get a loan right now. I have near perfect credit, no debt, cash in the bank and a job. I was pre-approved for hundreds of thousands of dollars but when it came time to get the loan it was a bear. My old bank, Bank of the West, wanted to charge me five points to get a loan. That’s the equivalent of paying $5,000 up front just to borrow $100,000. A Wells Fargo mortgage rep said their bank wasn’t “competitive at loans under $100,000.” Why they only want to lend more I don’t know. LendingTree.com promised to find me five offers in 48 hours. Two days later, they said they couldn’t help. They should change their advertising slogan to: When banks don’t want to compete, you lose.

Ultimately an independent mortgage broker—Mitch Ohlbaum of Legend Mortgage in Los Angeles—found me a loan with an institution I’d never heard of called Provident Funding. I had to put in more than I planned—a 25% down payment. I’m paying a higher interest rate, 6.2%, and one point in fees. Had I said this was an owner-occupied property I would have gotten a better deal. I also would have qualified for $8,000 in federal tax credits, but lying about such things is mortgage fraud.

Provident, bless them anyway, put me through a ringer. Bank statements, tax returns, notarized interspousal escrow instructions. At one point I was actually scraping and painting a house that I didn’t own because the lender wanted to see some damage repaired. I was out about $1,000 for inspections and other work before I was even sure I was going to get the loan.

The bank that owned the property wasn’t much fun either. On bank-owned properties they ask for a really tight window for you to waive your contingency for inspections—seven days in my case. They also wanted a commitment from me that I’d pay them $100 a day if I didn’t close on the day we agreed. This created all kinds of stress—and requests for waivers—on my end. I would definitely not agree to such terms if I was doing it again.

Bank-owned properties are commonly sold “As Is” meaning the bank won’t do any repair work. They are interested in getting rid of them however, and ultimately the bank paid over $5,000 for a new sewer line, termite abatement and other repairs.

I say bank owned, that’s only sort of true. US Bank was the servicer of the loan. The house was actually owned by a pool of mortgage investors. The previous owner had been foreclosed on. A neighbor told me he was a commercial painter who’d lost the house in October when his work slowed. I do feel sorry for him, but given how much he paid, he’s probably better off. He was probably shelling out $4,000 a month to live in the house. My payments—taxes, insurance, everything—will be $750.

Additionally, an alarming amount of unscrupulous debt collector attorneys are committing amazing fraud in Bankruptcy Court because of “lift stay” motions they filed via use of names of an entities which have no “standing,” or have no “real party interest.” Put plainly, foreclosed homes are an alarming epidemic, but it does not mean that all foreclosure proceedings are lawfully executed. The BIG picture is that there are thousands of people who being rendered homeless, yet those judicial proceedings to take those homes were dishonest, in violation of law, and in too many cases criminal. In a nutshell, NOT UNTIL a valid foreclosure case is filed in court, can a valid loss of the home occur. Unfortunately, in light of the nationwide MORTGAGE MESS, most likely foreclosure fraud exists on a NATIONAL LEVEL. For irrefutable proof and extensive details of the foregoing statement, visit http://www.lawgrace.org.

Barbara Ann Jackson
Law & Grace, Inc.

My Own Personal Crisis

March 7, 2009 8:58 AM

Hmmmm, I have some interesting stores to tell here. I'm a Realtor but also have my own personal problem! If you want to hear and publish it, then I'll right it up for you, but would much prefer to talk to you about it over the phone and you can then right it up and publish. It is a good one, believe me!

HiNetReturn

March 7, 2009 10:20 AM

See--It's not time to buy a home yet! What happened to that 4.5% rate. Until they make it easier to navigate this mess, sales will not improve. Good job but you got lucky as well as being very knowledgeable, putting in a lot of hard work and putting up with a lot of stress.

khoi

March 7, 2009 10:31 AM

that's awesome and thanks for the story!

PNW Trojan

March 7, 2009 1:02 PM

It's EARLY in the game, still...altho, there ARE attractive prices in some areas. I've experience two huge boom/bust cycles, and this is the 3rd time charm. As more and more foreclosures hit (6 more months) you'll begin to see banks BEGGING YOU TO BUY and get them off the hook. There are still 6 more months of rising unemployment, defaults....be patient, cuz there is NO TURN AROUND without YOU BUYING!!! The bankers are trying to skim the creme right now, but in 6-8 months = OUCH!!

Veronique Savary

March 7, 2009 1:54 PM

I am a Real Estate Agent here in Southern California. Lately I am primarily dealing with buyers. Here is what I have encountered. In short sales Banks take forever to make a decision on accepting an offer. Buying a short sale or foreclosure is only as good as your representing Agent. I have had no problems having major repairs done and paid for by Banks or Mtg holders. Your dela is only going to be as good as your agent is. This market is time consuming and not for the faint of heart
whether I represent the seller or the buyer I am like a dog on a bone. I am however picky on the clients I work with.

George Saghafian

March 7, 2009 6:00 PM

I'm a Realtor and a bank owned (REO) specialist in the SF Bay Area. We have many buyers looking for REOs and some properties are even selling with multiple offers.
Even with multiple offers the properties are discounted 30-50% from few years back. We also try to get most of the closing costs to be paid by the banks when we write offers.
It really is heaven for first time buyers and investor if the goal is long term for their return.

heath

March 7, 2009 7:27 PM

This is the time to buy, but it's tough to get a loan. my best friend is like you and almost lost the house he put money on to be built. His credit is in the 800s, etc.

Thanks for the article!

heath

EBowles

March 7, 2009 7:44 PM

Welcome to 2009 and the post BUSH ERA.
As a direct lender I can tell you that a 720 credit score and a bank full of reserves will not guarantee you a home loan.

AMERICAN GOT BUSH WACKED & BITCH SLAPPED!

If he lived in Chicago his LEGacy would be broken, both of them.

Michelle

March 7, 2009 8:13 PM

This is a great story and thanks for sharing. With persistence, I believe that this investor bought a great property that will have an upside for him. A property with this kind of cashflow is a great investment

ATL Guy

March 7, 2009 8:40 PM

It's amazing that after having destroyed our country's financial system through all kinds of financial alchemy we havent seen a perp walk of former finance and mortgage professionals. Instead we have our legislators fighting against anyone trying to stem the trail of blood from this crisis. Do we need to be in the abyss before Washington realizes that we need a more comprehensive approach to dealing with this issue? So far the Republicans have been hollering at the top of their lungs about socialism but have no ideas of their own on how to deal with a catastrophe that started on their watch and continued unabated up until we had a new President in office.

Lisa Stephens

March 7, 2009 9:39 PM

I'm a broker in Denver, Colorado.

I have a theory about real estate involving the relationship between commercial & residential brokerage & the negative impact that relationship has had, not only on the principle of 'highest & best use of' which is the supposed foundation for all commercial transactions, but also, the affect that non-use of this poorly defined basis has had, which has lead to the deterioration of the strategy behind supply & demand. This deterioration has seen this gradual decline throughout the relative history of this sector, and then coupled with declining confidence, poorly constructed market definition for big business, realized through lack of a clear path to business 'goals' due to large business mentality and inferior market focus. This series of articles would lead you into a progressive process for evaluation of corporate social responsibility, and the definition of these trends, which trends should be designed for and with purpose, in order to maintain control of the markets, not only for the businesses themselves, but for the business of investment, & then for the environment, and societal norms. A further investigation would lead to the business of technology, its next generation for progressive trending, and the movement of some of the glut of real estate professionalism, or lack thereof, due to stagnation of the 'business' of technology, & the return of those professionals to their market sectors, especially in Silicon Valley.

Please HELP!!!

Annie Bardas

March 7, 2009 10:01 PM

$125,000? Here in NYC you'd be lucky to get a studio (or a closet in a studio) for that. Love the hardwood floors, fireplace & built-in bookshelves - nice! Enjoy.

spencer

March 7, 2009 10:21 PM

Chris, thank you. Those of us considering following in your footsteps can learn a lot from stories like this.

Spencer

malcom

March 8, 2009 10:26 AM

Hi
My girl friends cousin worked in realestate in Florida. And some how convicned he her to sign the all the mortgage papers and loan papers. So now my girlfriend is responsible to the Mortgage company for payment. Well my girlfriend now her cousin lost her job and cant pay the mortgage. My girl friend realizes that she cant afford to make two mortgage payments and she is trying to get out of this problem. We live in New York and I dont trust her cousin to take care of this. Is there anytning my girlfriend can do? She is scared that she will lose everything she has worked for. Is there any advise that you can give her.

DJ

March 8, 2009 11:45 AM

Excellent real world, real experience article. Incredible how stupid bankers continue to be. I wonder how many deals fall thru because bankers are now so stringent in the loan requirements and charge such exorbitant fees that they continue to be stuck with properties that 2 years ago they would have loaned 3 times as much to anyone who could fog a mirror.

Shefali Algoo

March 8, 2009 3:14 PM

I agree with the views expressed in this article. Even if you have near perfect credit , been through graduate school and hold good jobs, banks are running scared.

It's sad. There are people who are willing to pay and have property to their name. It seems that only people with foreclosures are being heard. What about the rest of us ?

Shefali

robert

March 8, 2009 11:12 PM

Very interesting! Although I have encountered that financing with non owner-occupied properties is just a bit more labor intensive. The part of 'not being competitive under $100k' is astounding (I suspect that the banks get special assistance when they loan amount is over $100k).The question needs to be asked:'... if the financial institutions received government assistance why is so difficult to obtain small like loans like that described above? What will this multi-trillion dollar bailout actually do?

John Prescott, Top Metrowest Real Estate Agent

March 10, 2009 9:25 AM

Great way to show media and legislators what's REALLY happening in the housing industry.

Your personal story puts the real estate gridlock squarely on banks and other financial institutions which have taken our money (bailout by the taxpayers) and then refuse to lend out the TARP funds to home buyers - for the most part, the intended use of their bailout funds.

Until legal pressure is put into place, it seems the lenders will continue sitting on the fence.

That having been said, you got yourself one sweet deal. States such as California which had a huge run up, are experiencing a resounding thud as their pricing falls.

Here in metrowest Boston, where we didn't have the EXTREME bubble experienced in California, Arizona, and Nevada we are seeing a viable buyers' market when the home is priced at the right price point.

The higher end homes in the wealthiest communities are proving more difficult to move, but the right house, in the right location, at the right price is what it's all about.

To break the financial gridlock which is challenging and frustrating to buyers, we need the right pressure put upon the right players.

And fear is not the right pressure.

Accountability and a perpetual reminder about what fuels a growing economy should be the media's and public's focus.

John Prescott
Vice President
C21 Commonwealth

www.johnprescott.net

www.bostonkayakguy.wordpress.com

Flea

March 10, 2009 7:50 PM

What real estate story? I wish I had one. In my opinion we price responsible people out of the market. The ones who went to collage and have a good stable job. I am talking about mostly generation X and Y. We sold them out for the quick sale to the stupid. The bad credit people. The immigrants who don’t know any better. The McDonalds workers. The person who has three retail jobs and buys a 600 thousand dollar house. I make one hundred twelve a year in Washington DC. I have no chance of buying a house there. Maryland not even close. Virginia not a chance. I am probably going to regret saying this but it is the baby boomers fault. They own all the houses. My boss has three houses. One in Hawaii. He does not even make that much more then me. This selfish generation ripped off each others kids and the stupid people so they could buy a bigger house, pay cash for that SUV and fund there retirement thus creating the bubble. People buying houses who would never even been considered for a loan ten years ago. They did this through appraisers, real estate commissions, banks and the government who loves property tax. Hey we are all making money. Why regulated it. 700 grand for a thirty year old house that needs a kitchen. They must have used really expensive nails in the seventies. Get out of here. There is a whole generation waiting who got screwed. We should be focusing on making housing affordable for them instead of focusing on dead beats. Yeah I am bitter.

citracyde

March 13, 2009 10:24 AM

I am a 28 yr old working for a Fortune 100 company living in Connecticut. For the last 5 years, I have been sitting on the fence with a large downpayment because the homes in my area were significantly over priced given this country's average wage. I earn about $20-30K more than average in my peer group, yet was unable to with my fairly large downpayment, purchase a nice suburban 4 bdrm home until now. The prices here for anything decent were in the $400K+ range and shut so many 20-somethings out of the market. Compared to our elders, we have experienced little wage growth since joining the work force, so until the bubble finally broke many of us have been forced into renting.

I am proud to say I have purchased my dream home (not just "a first home"), because of this downturn. By waiting it out and recognizing that the home prices of the last 5 years were not sustainable and not stretching myself out financially to squeeze into that market, I have been healthily rewarded.

Alan Kosinski

March 17, 2009 8:39 AM

Chris’ article on his buying adventures in this market is something that more people should share.
Being in the real estate business for over 26 years as a creative investor & counselor and being licensed as a broker for over 21 years, I have heard parts of this story many times.
“Good ones go fast.” When an agent says this many people think it is salesman’s hype. Obviously this is not always the case especially in this market. The agents that are still working this market are the survivors and usually worth listening to.
“Avoid foreclosure auctions.” Not just not having time to do inspections, but also accessibility to the (possibly owner occupied) property for the inspections. Also if you are not paying cash (as many foreclosures require), your lender’s appraiser can’t gain access as required for your loan.
“Agent didn’t present offer”… this is illegal in every state. Agents who are not law biding should be held responsible and forced out of the business. Contact the agent’s broker/owner of the company, your local Realtor’s Association, and the state’s licensing commission.
“Stay away from short sales” has been my strong suggestion until recently. Several of my students have become “The Short Sale Specialists” in Massachusetts, and have encouraged me to take another look. They have been very successful in both short sales and loan modifications. Now I am an advocate, at least in the current market, for short sales and loan modifications. This is a great short sale market but you have to have the “staying power”, sometimes up to 8 months, but the deal can be worth it for both the buyer and the seller.
“Even if you’re pre-approved for financing, it’s a huge struggle…” In this market I am hearing this by so many buyers, sellers, and brokers. Be assured though, that there are many lenders that will finance in this market. The rates and terms may not be the best, but you can refinance your great deal in a few months (or years) when the credit crunch rebounds.
“I also would have qualified for $8,000 in federal tax credits, but lying about such things is mortgage fraud.” This is a great statement, and it should be a warning to those buyers who’s mortgage lenders, real estate brokers, and friends suggest they lie. Folks, this is Bank Fraud! Better known as “liar loans”, these are what many people who are being foreclosed on now got involved in. The branch of the Treasury department that handles these cases is The Secret Service. You don’t want these investigators chasing you down. Just don’t do it.
“As is”…Ahhh, remember that you don’t have to buy, but eventually, they have to sell. Keep on keeping on, and you’ll win. The banks will bend, at least a little – believe it or not they have come a long way.
This appears to be a great deal as it should cash flow positively as a rental. Good work!
-Alan Kosinski
Advent Associates LTD
Alan@AdventWIN.com
www.AdventWealthImprovementNetwork.com

mimi

April 21, 2009 10:59 AM

What amazes me is that the bank was willing to sell the house at a MUCH reduced rate....yet obviously NOT willing to help the homeowner in keeping it....where they could have earned more money in the long run.

shirley steadman

February 11, 2010 8:36 PM

i lost my house to forclosure, because my husband passed away and i lost $1200.00. i called the bank and told them i was having problems paying my payment. they talked i did not, i was not given a chance to talk, when they called. in jan of 2008 was my last payment. they threw my son and i out.we went to an apartment. a lot of dirty deeds to get my name on the line.

shirley steadman

February 11, 2010 8:36 PM

i lost my house to forclosure, because my husband passed away and i lost $1200.00. i called the bank and told them i was having problems paying my payment. they talked i did not, i was not given a chance to talk, when they called. in jan of 2008 was my last payment. they threw my son and i out.we went to an apartment. a lot of dirty deeds to get my name on the line.

shirley steadman

February 11, 2010 8:36 PM

i lost my house to forclosure, because my husband passed away and i lost $1200.00. i called the bank and told them i was having problems paying my payment. they talked i did not, i was not given a chance to talk, when they called. in jan of 2008 was my last payment. they threw my son and i out.we went to an apartment. a lot of dirty deeds to get my name on the line.

shirley steadman

February 11, 2010 8:36 PM

i lost my house to forclosure, because my husband passed away and i lost $1200.00. i called the bank and told them i was having problems paying my payment. they talked i did not, i was not given a chance to talk, when they called. in jan of 2008 was my last payment. they threw my son and i out.we went to an apartment. a lot of dirty deeds to get my name on the line.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.